(FINANCE) a limited liability partnership (LLP), originally limited to 99 partners, and organized to trade securities under specialized guidelines. The first hedge funds were organized to be a counterparty to the riskiest forms of derivative transactions: writing exotic options or swaps in which the buyer transferred most risks (and potential gains) to the hedge fund, but then offsetting the risk with different derivatives.

The first hedge funds benefited (or thought they benefited) from the Black-Scholes formula used to calculate the value of options; supposedly a hedge fund manager could design an immensely complex portfolio consisting mainly of explosively volatile instruments , whose pieces were supposed to absorb each other's risk.

Hedge funds mainly avoided the consequences of the financial meltdown they helped create, racking up gains through the '00's that far exceeded the rest of the stock market.

The hedge fund used to play a major role in absorbing and structuring the risks associated with hedging risks associated with large portfolios, but they now are sophisticated gambling enterprises.

A type of investment fund with very high fees for investors and a focus on complex financial derivatives. Hedge funds charge around 20% of returns (sometimes a lot more) plus a flat fee of typically 2%.

Originally hedge funds were based on the concept of risk hedging; high-yield investments are always riskier than low-yield ones, so a fund manager could presumably put all the money in one instrument with enormous risk and hope for the best. That is, to put it bluntly, insane. So the manager uses a strategy of hedging risk as cheaply as possible, such as a very elaborate combination of derivatives that rise in value if the main asset declines in value.

Hedge funds are organized to be very exclusive, requiring a very long commitment and limited membership. The managers are much more daring and will take much more aggressive risks than mutual funds.

The largest hedge fund company is JP MorganChase.

During the first decade of the '00's, hedge funds outperformed most other asset classes. But when they melt down, like LTCM in 1997, it can be a huge event.

Not to be confused with grass money, this term refers to a separate financial account that a homeowner maintains to cover the costs of products/services to keep his shrubbery tidy and healthy.

Burglars tend to target properties with tall/dense shrubbery that they can crouch behind and hide, so you should always keep a healthy hedge fund to ensure that your bushes stay trimmed and transparent.